Tata Power pulls out of Indonesia mine

The company will, however, retain its sake in PT Kaltim Prima Coal, which owns one of the largest mines in the world.

In a late evening announcement, the Tata group company said it was exiting Arutmin as it faced under-recovery challenges at its Mundra project and cash flow concerns. The company said the sale would enable it to get additional cash flows and reduce its consolidated debt.

The stake sale to a Bakrie Group entity is subject to certain conditions and restructuring actions, which the company expects to complete in the next three months.

“Arutmin, which is a mine spread over a number of pits in South Kalimantan, Indonesia, had started posing production and coal viability challenges in its operations,” the company noted.

In March 2007, Tata Power had signed definitive agreements to purchase 30 per cent equity stakes in Kaltim Prima Coal and Arutmin and a related trading company owned by PT Bumi Resources Tbk.

The company had signed an offtake agreement with Kaltim Prima, which entitled it to purchase about 10 million tonnes of coal per annum, thereby supporting its projects on the west coast of India.

The requirement of these projects was then put at 21 million tonnes of imported coal, which was expected to be secured through a combination of purchasing equity stakes in coal mines and entering offtake contracts.

Tata Power had then paid $1.1 billion for both the purchases.

“The current coal price scenario has presented a challenge to the entire coal mining sector. The proceeds from the sale of Arutmin will provide cash to meet the company’s current challenges. We do not expect any impact on the coal supplies to our plants since we stay invested in KPC mines and our coal supply agreement continues as it is,” Anil Sardana, managing director of Tata Power, said.

Last year, the Central Electricity Regulatory Commission had said Tata Power should be compensated because of a rise in the price of coal from Indonesia. A panel set up by the regulator reportedly suggested a nearly 50 paise hike in tariff for Mundra power.